REGULATORY MATTERS

12 Months Ended

Dec. 31, 2017

Banking and Thrift [Abstract]

REGULATORY MATTERS

REGULATORY MATTERS

As a bank holding company, the Company is subject to regulation and supervision by the FRB. The primary subsidiaries of the Company are its two insured depository institutions CBNA, a national banking association whose primary federal regulator is the OCC, and CBPA, a Pennsylvania-chartered savings bank regulated by the Department of Banking of the Commonwealth of Pennsylvania and supervised by the FDIC, its primary federal regulator. Under the U.S. Basel III capital framework, the Company and its banking subsidiaries must meet specific minimum requirements for the following ratios: common equity tier 1 capital, tier 1 capital, total capital, and tier 1 leverage. In addition, the Company must not be subject to a written agreement, order or capital directive with any of its regulators. Failure to meet minimum capital requirements can result in the initiation of certain actions that, if undertaken, could have a material effect on the Company’s Consolidated Financial Statements.

On December 22, 2017, President Trump signed the 2017 Tax Legislation which included a reduction in the corporate tax rate from 35% to 21% For Citizens, this required a revaluation of the Company’s net deferred tax liability with a corresponding adjustment to current tax expense, and resulted in a $331 million net tax benefit. Included in this net tax benefit was $145 million of expense related to the revaluation of the Company’s deferred tax assets associated with unrealized losses in AOCI. FASB standards in-place at December 31, 2017 required the Company to revalue all deferred taxes, including those related to balances in AOCI, through current tax expense. As a result, the Company’s unrealized loss balance in AOCI was not revalued to reflect the new corporate tax rate. This impact, commonly referred to as the “stranded tax effect”, was taken under consideration by FASB in January 2018 to address concerns primarily raised by banking institutions, including distortion of net income and regulatory capital. In February 2018, to address the “stranded tax effect”, FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides entities the election to reclassify the difference between the new and old corporate tax rates resulting from the 2017 Tax Legislation between retained earnings and AOCI for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company has retrospectively adopted ASU 2018-02, elected to reclassify $145 million between AOCI and retained earnings, including indirect impacts from the decreased federal tax effect on future state tax benefits, and reflected this reclassification in the Company’s 2017 Consolidated Financial Statements, included in this report.

The following table presents the Company’s capital and capital ratios under U.S. Basel III Standardized Transitional rules. The Company has declared itself as an “AOCI opt-out” institution, which means the Company is not required to recognize in regulatory capital the impacts of net unrealized gains and losses included within AOCI for securities that are available for sale or held to maturity, accumulated net gains and losses on cash-flow hedges and certain defined benefit pension plan assets.

	Transitional Basel III
									FDIA Requirements
	Actual				Minimum Capital Adequacy				Classification as Well-capitalized(6)
(in millions, except ratio data)	Amount		Ratio		Amount		Ratio(5)		Amount		Ratio
As of December 31, 2017
Common equity tier 1 capital (1)		$14,309	11.2	%		$7,342	5.750	%		$8,300	6.5	%
Tier 1 capital (2)	14,556		11.4		9,258		7.250		10,215		8.0
Total capital (3)	17,781		13.9		11,812		9.250		12,769		10.0
Tier 1 leverage (4)	14,556		10.0		5,824		4.000		7,280		5.0
As of December 31, 2016
Common equity tier 1 capital (1)		$13,822	11.2	%		$6,348	5.125	%		$8,051	6.5	%
Tier 1 capital (2)	14,069		11.4		8,206		6.625		9,909		8.0
Total capital (3)	17,347		14.0		10,683		8.625		12,386		10.0
Tier 1 leverage (4)	14,069		9.9		5,667		4.000		7,084		5.0

⁽¹⁾ “Common equity tier 1 capital ratio” represents CET1 capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.

⁽²⁾ “Tier 1 capital ratio” is tier 1 capital, which includes CET1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.

⁽³⁾ “Total capital ratio” is total capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.

⁽⁴⁾ “Tier 1 leverage ratio” is tier 1 capital divided by quarterly average total assets as defined under U.S. Basel III Standardized approach.

⁽⁵⁾ “Minimum Capital ratio” includes capital conservation buffer of 1.250% for 2017 and 0.625% for 2016; N/A to Tier 1 leverage.

⁽⁶⁾ Presented for informational purposes. Prompt corrective action provisions apply only to the Company’s insured depository institutions - CBNA and CBPA.

Under the FRB’s Capital Plan Rule, the Company may only make capital distributions, including payment of dividends, in accordance with a capital plan that has been reviewed by the FRB with no objection.

On April 5, 2017, the Company submitted its 2017 Capital Plan to the Federal Reserve under the annual CCAR process. On June 28, 2017, the FRB informed the Company that it did not object to the Company’s 2017 Capital Plan or to its proposed capital actions for the period beginning July 1, 2017 and ending June 30, 2018. The Company’s 2017 Capital Plan includes quarterly common dividends of $0.18 per share through the end of 2017, increasing the quarterly common dividend to $0.22 per share in 2018, and a share repurchase plan through the second quarter of 2018. The timing and exact amount of future dividends and share repurchases will depend on various factors, including capital position, financial performance and market conditions.

For the year ended December 31, 2017, the Company paid total common dividends of $322 million and repurchased outstanding common shares for $820 million, compared to $241 million in common dividends paid, $430 million in outstanding common shares repurchasedand $625 million of qualified subordinated notes repurchased for the year ended December 31, 2016. Additionally, the Company paid total preferred dividends of $14 million for both periods.

In accordance with federal and state banking regulations, dividends paid by the Company’s banking subsidiaries to the Parent Company are generally limited to the retained earnings of the respective banking subsidiaries unless specifically approved by the appropriate bank regulator.